FocusEurope benzene bullishness frustrates downstream markets

18 July 2012 12:58[Source: ICIS news]

By Truong Mellor

LONDON (ICIS)--Continued bullishness in the European benzene market, driven by firm global prices and limited domestic availability, is keeping downstream activity subdued and leaving players frustrated, sources said on Wednesday.

“Benzene is not to be trusted,” said one trader, who believed the market would eventually see a sharp fall and some minor recoveries before a return to more normal conditions.

A styrene consumer said: “The issue of benzene just won’t go away ... I expect the August barge contract will go up again.”

July had started to see a slight easing off on prices, as several hydrodealkylation (HDA) units came online and imports arrived from other regions.

However, the market saw another sharp upturn as the month progressed, with July trading at $1,235/tonne on Monday 9 July but deals as high as $1,400/tonne once again being reported by Friday July 13.

Many styrene players are unsure of how the coming weeks will shape up, and as a result are opting to remain on the sidelines until a clearer picture becomes evident. Offers for July benzene have stayed at $1,400/tonne and above this week, virtually on a level footing with current styrene prices.

The backwardation on benzene into August has also narrowed, with deals already done this week at $1,345/tonne, possibly indicating that the current dynamics of the market may continue into next month.

Furthermore, players agree that it is only the high cost of benzene that has been keeping styrene at such a level - demand from all key derivatives sectors remains slower than expected for this time of year.

The most recent cause of the continued bullishness for benzene is the upturn seen in the US, which is the result of three major factors: low run rates on toluene disproportionation (TDP) units owing to poor margins, a raft of other production problems and the associated short covering and the perception of product tightness in EU and Asia adding to the uncertainty.

With prices in the US Gulf comfortably above $5.00/gal ($1,500/tonne), this has led several European traders to fix vessels from the ARA (Amsterdam-Rotterdam-Antwerp) region.

“We shouldn’t be exporting from Europe to the US,” said one trader, who nonetheless confirmed that he was. “It’s the last thing the market needs.”

European benzene prices have been consistently firm since April 2012, when production cutbacks and diverted imports led to availability restrictions and a sharp rise in pricing.

With only some short and brief exceptions owing to lower oil pricing and production restarts, prompt benzene numbers have continued to hover around the $1,350-1,400/tonne CIF (cost, insurance, freight) ARA level, which is where July is currently valued.

There have been confirmed deals as high as $1,440/tonne and even widespread talk of trades at $1,500/tonne since the bullishness began, in what one trader called a “bloodbath” back in May.

The current situation on benzene is also impacting other downstream areas of activity such as adipic acid and polyamides (or nylons) chains, which continue to struggle with poor end use demand.

“Benzene’s a crazy situation,” a nylon buyer said. “We have customers buying on a benzene-related basis. We lose margins because of volumes. We lose margins because of prices. We lose margins because of raw materials. They’re [benzene players] not listening to us. It’s a big mess.”

For many downstream players, the benzene market is looking increasingly divorced from reality with its spreads of $500/tonne or more over naphtha, a situation not helped by Brent futures still in triple figures.

“It’s not getting easier,” said a caprolactam buyer. “Especially if you look at benzene. There’s no reason for it.”

($1 = €0.81)

Additional reporting by Mark VictoryFollow Truong Mellor on Twitter for daily tweets on the aromatics market